Economics : 2016 : CBSE : [Delhi] : Set- II

(c) Both under monopoly and monopolistic competition

Explanation: The monopolist and monopolistic firms face downward sloping demand curve which shows the negative relation between price and demand for the product.

c. Both (a) and (b)

Explanation: Homogeneous products imply that goods produced by different producers are identical.

b. equal to average revenue

Explanation: When total revenue is rising at a constant rate as more and more units of a commodity are sold, marginal revenue would be equal to average revenue.

Increase in supply takes place due to favorable changes in factors other than the price of the good (like improvement in technique of production, fall in the price of inputs, reduction in taxes, etc.). An increase in supply shifts the supply curve to the right.

When average cost is constant, AC is at its minimum point. This is the point where MC is equal to AC and MC curve cuts AC curve from the below.

A price ceiling is a government-imposed limit on how high a price can be charged for a product. Price ceilings are often intended to protect consumers from certain conditions that could make necessities unattainable. Example: prices of wheat at ration shop.

Price ceiling accompanied by rationing of the goods may have following implications:

• Black marketing: Price ceiling leads to excess demand in market which in turn creates black marketing if market price is below the equilibrium price. In the black market, goods and services are sold at a price more than the price fixed by the government. It implies the failure of government policy.
• Consumer has to wait in long queues: When there is excess demand in the market, people are demanding more than supply. People have to wait in long queues for buying goods.
• Consumers not satisfied with the quantity: Since all consumers will not be able buy desired quantity from the fair price shop, some of them will be compelled to buy from regular market at higher price.

If price of a good is less than the equilibrium price, there will be a situation of excess demand. There will be competition among the buyer to purchase more and more quantity at a lower price. It will push the prices upward and reduce the excess demand. These changes continue till the price settles at the equilibrium point. At this price, demand is equal to supply.

A consumer attained equilibrium when

MU_X/P_X = MU_y/P_y

Where,

MU_X = Marginal utility derived from good X

P_X  = Price of good X

MU_y = Marginal utility derived from good Y

P_y  = Price of good Y

By putting the values in the given formula, we get

       MU_x/P_x = 4/5and

       MU_Y/P_Y = 5/4

Thus, as MUx/Px < MU_Y/P_Y, the consumer is not at equilibrium.

A rational consumer who wants to maximise his utility should increase the consumption of good Y and decrease the consumption of good X. This is because the utility that the consumer derives from the last rupee spent on good X is less than the utility that he derives from the last rupee spent on good Y. Thus, the consumer should increase consumption of good Y and decrease the consumption of good X till MUx/Px = MU_Y/P_Y.

Price elasticity of demand of good Y is more elastic than good X. For the measurement of price elasticity of demand we ignore the negative sign because this sign appears due to the negative relation between price and quantity demanded of good not because of the mathematical calculation.

P₀ = 20

Quantity supplied, Q₀ = 100 units

Q₁ = 80 units

ΔQ = Q₁ - Q₀ = 80 – 100= - 20 units

P₀ = 20

P₁ = ?

Price elasticity of supply, e_s = 2

e_s = ΔQ/ ΔP  X P/Q

2 = - 20/ ΔP X 20/100

ΔP = - 20/2 X 20/100

ΔP = -2

ΔP = P₁ - P₀

-2 = P₁ - 20

P₁ = -2 +20 = 18

Thus, at 18 the producer will supply 80 units.